Debt jump from C8

November 15, 2005

Of the more than $30 trillion in foreign investment tracked by the Bank for International Settlements in the first three months of 2005, 42.5 percent were in dollars and 39.3 percent were in euros, Greenspan noted. The dollar's share was down by 4 percentage points from around three years earlier, while the euro's share was up by 5 percentage points, he pointed out. White House economist Ben Bernanke, the president's choice to succeed Greenspan, has argued that a number of diverse forces including a global savings glut has contributed to the widening current account deficit. Bernanke, a former Fed governor, believes over time the deficit can be curbed without inflicting major damage to the economy. The current account deficit this year has exceeded 6 percent of the total U.S. economy as measured by gross domestic product, an all-time high. In 1986, the deficit accounted for 3.5 percent of GDP. The United States has been able to finance the yawning deficits as foreign investors have become more willing and comfortable investing outside of their respective countries, Greenspan said. Bernanke also has made this point. The United States also has benefited from being considered the world's reserve currency, the currency foreigners turn to first when they want to hold investments outside of their country, Greenspan said. This foreign investment has helped to keep U.S. interest rates lower than they otherwise would be. "Although I doubt that the U.S. dollar will lose its status as the world's reserve currency any time soon, there are in my judgment lessons to be learned from the experience of (Britain's currency) as it faded as the world's dominant currency," Greenspan said.